Updated: Nov 25, 2020
James Chapter 4, verses 13-14 state, “Come now, you who say, ‘Today or tomorrow we will go to such and such a city, spend a year there, buy and sell, and make a profit’; whereas you do not know what will happen tomorrow.” I continually am reminded through this Bible verse that I tend to lean towards being the master of my own destiny, especially with investments. But it is always important to recognize that God, as creator and ultimate judge of all, is in control. This doesn’t mean I don’t plan and prepare for the future, but rather, as verse 15 in James Chapter 4 instructs, “Instead you ought to say, ‘If the Lord wills, we shall live and do this or that’.”
Nikola Corporation (NKLA) is a company that finds itself in a tremendously scrutinized position publicly, where the near-term future is murky at best. Most everyone knows the story – Trevor Milton’s exit due to short-seller fraud allegations, SEC/DOJ investigations, and a prolonged negotiation with General Motors (GM) which was supposed to have closed over a month ago. As I read what most articles and comments are saying on social media, the company has been left for dead, and yet the stock price is up nearly 65% the past two weeks.
When I read between the lines, I see something interesting. Over the past month or so, Nikola has done two things. First, the company has repeatedly reiterated that it has always had a base plan in place and that going it without GM can lead to success. Two, the company has provided a lot more clarity regarding its technologies, patents, and existing partnerships to separate itself from controversy.
During this same period, GM has made multiple announcements that the company is pivoting much faster now towards an electric vehicle, or EV world, albeit without mentioning a word on Nikola’s inclusion in this transition. Both companies continue to state that negotiations are ongoing.
I think it's clear that both Nikola and GM are exerting public pressure upon one another to force a concession to each other’s advantage in order to close the earlier announced deal. This doesn’t give me any greater answer as to whether a deal happens before December 3rd, gets extended further, or doesn’t happen at all. All three options are still on the table, and no one will know until something gets leaked or breaks.
But it makes a whole lot of sense with negotiations continuing to occur, and also alludes to the fact that there are sticking points that need to be hashed out. Issues likely relate to the equity GM is seeking and/or whether Nikola prefers an actual stake for more interest, as well as the milestone timing between heavy-duty trucks versus the Badger as GM may be looking at different near-term priorities.
I have continued to build a position in Nikola as existing partnerships are stable, and the investment opportunity will not be removed in the event GM walks away entirely. Investors looking at Nikola must realize one thing; it is a highly risky play either way. If GM walks away, shorts are going to expect an opportunity to push the stock price back towards $20. The lock-up period expiring could hit the stock as well, but this isn't always the case, despite the pessimistic hype. If GM extends and/or completes an agreement with Nikola, the stock price is likely headed back towards $40-50 per share. The recent rally is clearly expecting a deal, and we will get our answer soon enough.